India’s biggest tax reform in decades embraces tech and opens the door for startups

Photo credit: Trocaire.

The developer portal for India’s revolutionary, constitution-amending tax reform on goods and services, the GST, is a good indicator of how the government wants the new system to run.

It’s smooth and organized. Follow the dropdown menu to reach the APIs, where bundles of code reveal what the government hopes techies will use to aid various kinds of taxpayers – things like authentication, return filing, and record keeping.

Enter large software companies, like Tally and SAP. Both are popular in India and are openly using these APIs to create tech solutions, organizing forums to discuss the GST, and publishing content on how everything will work.

Then, there are startups that help file taxes with solutions on the cloud. Their pitch is simplicity. The GST needs to be filed monthly, compliance can be confusing, and the data clunky to store – so why not go with something lightweight?

One is ClearTax, co-founded by CEO Archit Gupta. Archit is excited about the potential the tax brings, but nearly breathless when he starts talking about its close relationship with technology.

“They’re going paperless,” the PhD dropout tells me excitedly. “It’s very progressive for the tax department to be doing this.”

What is the GST?

Direct taxes are charged on income and corporates while indirect taxes are taken from intermediaries, like goods and services.

Currently, both central and state governments apply indirect taxes in India. There are many of these, including excise taxes, which are applied on manufacturing costs, VAT (value added taxes) during the process of sales, and entry taxes between state lines. Rates vary from state to state, making taxes difficult to track, returns hard to manage, and corruption easy to miss.

Take the VAT, which is applied at each stage of a good’s production including its sale. It’s slightly different across states, so a different amount is paid each time it moves across the country. A lack of transparency means people are also paying taxes on taxes – the tax they pay is often calculated from the value of a product plus the tax that’s already been paid on it.

The GST will collapse all of these smaller taxes and present a single rate for all goods and taxes. Its three components are the central government’s GST, the state’s GST, and inter-state GST. Together, they make up the overall GST, which will apply tax on the “supply” of goods, meaning their destination.

Essentially, it will treat India like a single market – except for a few industries like liquor and petroleum.

The execution is where technology comes in.

Cloud-based solution

“The GST in itself is easy, but implementation is tough,” explains Archit. “Because of a huge population and large number of businesses, tech becomes the only way to bring efficiency and scale.”

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